We Study Billionaires - The Investor’s Podcast Network - BTC222: Top 5 Bitcoin Clips of Q1 2025 w/ Joe Burnett (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone. Welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. I have an exciting and fun show for you today with Mr. Joe Burnett, where we're talking about five of his top curated clips that he's seen recently. We have an interesting clip from the newcomer secretary Howard Lutnik, a clip from Nick Batia talking about how the bond market creates more fiat into the system. We have a clip from Michael Saylor and two more.

Starting point is 00:00:27 So without further delay, here's the show with Joe. I have no doubt you guys are going to love this one. Celebrating 10 years. You are listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. Hey, everyone, welcome to the show. I am here with Joe. I am thrilled to do this.

Starting point is 00:00:58 I did this probably a year and a half ago or two years ago where we're playing like the top five clips that I had curated. But you're the one that curated these clips, Joe. and I'm really excited to go through them and just kind of share them with the audience. So welcome on the show and hopefully we can do more of this in the future of people like it. Yeah, absolutely, Preston. Thanks for having me and excited to go through these. Okay, so this first one is a personal favorite of mine.

Starting point is 00:01:28 As an engineer, this clip that we're about to play with Sailor, I think just does such a phenomenal job kind of explaining what he's doing at Microstratory. Bitcoin at large. I think for maybe an outsider, they might listen to it and they'd be like, how does this relate to Bitcoin? And hopefully Joe and I can maybe talk through some of that after the clip plays. Did you have any other commentary before we let this one run? Yeah, no, this is definitely one of my favorite clips that I think I've heard Saylor say.

Starting point is 00:01:58 And I feel like the question was framed someone as like a gotcha question. And I think Saylor does like a great job of dismantling that and then explaining his reasoning. So I thought it's a great clip. All right. Let's do it. And I'm putting it up on the screen and we're going to go ahead and let this baby play. But I think where people trip up with your language is this idea of the inevitability of the 60%. What would you say to that? So we're dealing with three concepts, risk, volatility, and performance. Okay. So I've addressed

Starting point is 00:02:28 the risk issue by pointing out that there is existential risk in your given network or frame of reference. And I just want to make that point that once you understand, understand that risk of being in that frame of reference, then you have to figure out what's the source of the volatility and the performance. And if you don't understand why the asset does what it does, if you don't understand the economic physics involved, then you'll think it's random and you'll feel like the performance is risky. But I want to give you an example of a physical metaphor. I'm a hiker and I come across a mountain lake. And the mountain lake has 500,000, trillion gallons of water in it. And yeah, I don't know how it got there, but is there. The water's

Starting point is 00:03:14 chilly. It's clear. And I look down and there's a waterfall coming off the mountain lake. And the waterfall is very beautiful and it's very turbulent, right? Water is turbulent in a waterfall. Water is not turbulent in a glassy lake. So the turbulence is volatility and there's waterfall. And then I look at it. And now if you look and you say, I don't know why that water falls downhill. I don't know if it'll keep falling downhill, but I hate the volatility. Then I guess you can take a selfie in front of the lake, go swimming, get cold and leave. But let's say you're not a tourist, but you're an engineer. So you come across the same lake and you see the waterfall and you see the 500 trillion gallons.

Starting point is 00:03:58 And you think about gravity and you think about sunlight. And now I know how the water got there. The water got there because the sun shone on the ocean. The water evaporated from the ocean. It rose up in the clouds. The wind blew it against the mountain. It condensed and it rained into the mountain. And the water ran off the mountain into the mountain lake.

Starting point is 00:04:17 I know how it got there. And then I think, well, if I create a dam near that waterfall, I build myself a dam, I put a turbine on the dam, and then I drop a billion gallons of water. I channel a billion gallons of water through the dam, drop it 60 feet. And then I plug that into a hydroelectric power plant. I spin the dynamo. I make electricity. And then if I'm really smart, I run the electric power line to a village down in the

Starting point is 00:04:42 valley. I light up the village or I light up the city. Now, someone can come along that doesn't understand physics and they can say, good idea, Jr. But what are you going to do when the water stops flowing downhill? Well, I'm like, well, I actually think the water's flowing downhill because of gravity. Newton solved that for me. And then someone else comes along and says, good idea, Jr., but what are you going to do when you run out of water in the lake?

Starting point is 00:05:07 I'm like, well, there's 500 trillion gallons, and I take on my calculator and a billion gallons or whatever, it's going to last a long time. Like, well, it's eventually going to run out. I say, well, you know, the sun keeps shining on the ocean and the ocean keeps lifting the, you know, the water out of the ocean and it drops it on this mountain. and that's why there's water in the mountain. But you're right, there's some kind of natural limit, and I suppose there's a limit to the amount of energy I can pull off of this dam, but it's a large number. It's a lot more than your donkey cart, and it's a lot more than your steam wood stove, and it's a lot more than your coal power plant, and maybe it's a lot cleaner than burning gasoline. So I'm an engineer, and you're seeing performance thinking it's random, and that's why it's going to

Starting point is 00:05:55 stop and you're seeing volatility and you're thinking it's random and maybe it'll stop. And here with Bitcoin, the reason Bitcoin's performing is, A, it's volatile, but B, it's a more energy efficient state. The water is flowing down 5,000 feet because it's a lower energy state, a thousand feet below the mountain. It's a lower energy state. You've got potential energy in the water and it wants to go to ground and that's just physics. The 500 trillion gallons of water, is $500 trillion. And the $500 trillion of assets are sitting in real estate and currency and sovereign bonds and corporate bonds and artwork and equity and they're invested in the stock of a company in Africa that's going bankrupt, right? They're invested in real estate in Cuba, in Venezuela,

Starting point is 00:06:50 in Nigeria. They're sitting in a warehouse that's crumbling. It's got a four, year life. And so entropy and inflation, you invested $100 billion in a war zone. And then a war broke out. Your asset got devalued. All of the things going on in the world, the war, the chaos, the competition, the inflation, the entropy, the passage of time, the hurricane, the COVID, you know, vaccine, the COVID virus. All of these things impaired the value of your assets. The reason Bitcoin is going up. It's not an accident. It's because capital is economic mass. It is flowing from a high energy state, the mountain top, to a lower energy state, to a more efficient state. It is steam, convincing the water, condensing to ice, giving off energy, just like in any chemistry

Starting point is 00:07:45 lab, you would learn this. All right. So this is one of my favorite clips because there is so much going on in this. This clip came from impact theory. Joe, do you know his name who does that over? He does a really good job. Yeah, Tom Bello, Bay, or something like that. Yeah. And we're going to have a link in the show notes to all these clips that we're playing so that you can go and watch the entire interview or the original source video. But good Lord, go ahead and take it away on your recap. And then I'll share, I guess, some of my thoughts as well. But go ahead, Joe. Yeah, absolutely. Like you said, this is one of my favorite sailor clips of all time. I really love this analogy of assets wanting to move from

Starting point is 00:08:25 high potential energy state to a lower potential energy state. And I've never articulated it in that way, but that's kind of how I've thought about Bitcoin for a while in the sense that like if humanity stores $20 trillion worth of wealth and gold, then there's a market incentive or a bounty for entrepreneurs, miners, businesses, governments to go out there and mine more gold and dilute gold and sell it on the open market at the market price. Same with real estate, $300 trillion worth of wealth and real estate. That's a bounty and a market incentive to go out there and build more houses and apartment buildings.

Starting point is 00:08:59 So it's like, Bitcoin is this lower potential energy state where no matter how much time, energy, or resources are poured into trying to create more Bitcoin, there's only ever going to be 21 million Bitcoin. So I feel like it aligns really well with like the scarcity of Bitcoin, and it just shows that capital naturally wants to be, wants to flow out of these older traditional assets and potentially into Bitcoin. He did this presentation to Microsoft. And in the presentation, he said, here's, if you add up the value of everything on the planet,

Starting point is 00:09:33 today it's about 900 trillion for all of it. And then what he says is that if you take that 900 trillion, it's split into two categories. People are storing things for store of value purposes and then people are valuing it based off of utility. And what he's saying is that today, before Bitcoin's minuscule right now, compared to these valuations of everything, but his opinion is, is that call it half of that $900 trillion, is made up of people that are pushing it into something that's just for store of value purposes, call it real estate, people owning three to five homes in the Hamptons because it's a desirable location. They don't need all those homes, but they need to store and freeze

Starting point is 00:10:13 that value that they earned or the profits that they earned, they need to store it into something and they're choosing to do it through real estate because it's preserved its buying power better than other assets. So what he's saying in this presentation to Microsoft is that if half of people are choosing to store their buying power in something for store of value purposes. His opinion is a lower energy state or something that is getting the base at a way lower pace than we'll call it real estate because you're paying real estate taxes, you're paying to keep the building sustained, like all of these things are frictional costs in order to try to preserve your buying power in these types of things. He's saying Bitcoin, there's like near

Starting point is 00:10:58 zero. Like the energy state is so low compared to these other things that his opinion is that a lot of that buying power. And we could pull up the slides, but he suggests an enormous amount of that buying power to the tune of hundreds of trillions of dollars of that buying power is going to shift and move into Bitcoin. And it was just so well articulated in a visual kind of way in that video clip. And there's a lot more going on there than what I just, you know, threw out. But definitely something for people to think about and use as a visual. And I love this other undertone, sorry to keep going on Joe, but the other thing that I really like about what he's talking about is he's also putting on display, if you don't understand other complex topics, it's going to be

Starting point is 00:11:44 very hard for you to see or understand this much bigger thing that's been pieced together. So he does this through like, well, how did the water get in the lake? And it's like, well, you have to understand how evaporation works and that it's a function of the sunlight hitting the earth. And if you're a person who's just walking up and you don't understand these concepts, you're going to look at all the water in the lake and you're going to say, oh, well, that's going to become depleted, and then that's not worth your time. And that was just like one example of many that are in there. And I would argue for a person to truly understand Bitcoin and how like all this buying power is flowing into Bitcoin and how the flow of funds are going to continue to persist,

Starting point is 00:12:24 there's a lot of different complex macro topics that you really have to deeply understand to understand how this is going to continue to flow into it. And so he does that so well in that example. And yeah, I just love that clip. That clip's awesome. Yeah. I'll add one more thing, Preston, I thought was really interesting. Like the waterfall analogy in particular is so fascinating in the sense of like a waterfall

Starting point is 00:12:51 is very volatile and scary. And I feel like a lot of people are like looking at. at Bitcoin, they're staring at the waterfall right in front of them. And that's all they see is what's been happening over the last couple months or even the last 12 months. Whereas in reality, it's like, you got to zoom out and see the big picture of the water evaporating into the lake. And then the lake blowing through the waterfall down into Bitcoin. That's exactly kind of what's happening is most people are just stuck looking at the waterfall right here and they just see the volatility and the short-termness. In reality, they got to zoom out and see the really

Starting point is 00:13:24 big picture. Yeah, totally. All right. So this next clip is Trace Mayer, which we're going to play. And for people that maybe are newer to the space, they might not know who Trace is. He is an OG in the Bitcoin space. I have a bit of a confession. This guy had an enormous part in orange-pilling me a decade ago whenever I was watching videos of him talking about network effects and whatnot. And yeah, so let's go ahead and play this clip and then let's see what we've got as far as commentary afterwards, Joe. When we look through the long corridors of human history from our journey from the swamps to the stars, we've had these innovations that come about from brilliant minds, you know, the coining of golden silver thousands of years ago, Nicholas Copernicus with heliocentric theory and the quantity theory of money,

Starting point is 00:14:18 Isaac Newton coming up with the gold standard itself that laid a foundation for peace and prosperity and world trade on a massive scale, the brightest mind ever in human history. Johann Van Guta, a 215 IQ, 30 points higher than Isaac Newton's. He wrote in Faust about all the negative effects that come to society when the government or the state takes control of the monetary unit. And at the end of the day, gold and silver, and I would put Bitcoin, they're not just mere commodities, but they're essential checks and balances in the political machinery. They stand in the same place as constitutions and bills of right.

Starting point is 00:15:03 This isn't about money or merely making money. It's about whether individuals will make their choices or whether monetary elites will make the choices for them. It's going to be, in my opinion, a very bright future because if we really want to change things, we have to change the economics. And through all of human history, if we look at the economics of violence, it's been very profitable to engage in violent activity. Conquering a neighboring tribe, stealing their crops, taking their land, the industrial age,

Starting point is 00:15:39 we needed force to be projected on a massive scale to protect our railroads, the holders of capital could easily be extorted, the coal mine, by taxes, by organized labor. But as we move into the information age, Diffy and Hellman came up with asymmetric cryptography, public key, private key encryption, which is a vital component of Bitcoin itself. And some of the original cypherpunks realized the economic implications of this asymmetric cryptography because the laws of the universe, they bless nuclear power and nuclear weapons. But they also bless the laws of mathematics and this asymmetric cryptography. And at the end of the day, no amount of violence will solve a math problem.

Starting point is 00:16:27 You cannot direct a nuclear bomb at a math problem and solve it. That is just not how math works, period. And with asymmetric cryptography, it has changed the economic of violence, this is a tectonic layer for guiding human action and human behavior because now the costs of protection has rapidly plummeted and become free in a lot of cases. And yet the return on investment from attempting to extort, it's just not possible. I mean, you can tax the coal mine and you can organize labor, but like with the information age assets, they're increasingly fleeing into these areas.

Starting point is 00:17:10 where they can secure protection behind cryptography. And that's a big deal because now holders of capital, whether it's the ultra-rich or whether it's someone in the developing world, they can now secure protection for their money basically for free using open source software. And that's a huge, huge deal because our freedom is directly proportional to the amount of protection that we're able to secure for ourselves. And this is a huge force-multiplying technology that we're able to use to secure that freedom. And at the end of the day, it changes the economics of violence.

Starting point is 00:17:50 And it makes violence not very profitable anymore. In fact, it makes violence a wealth-destroying activity. And that, I think, will change the underlying tectonic plates that all of our human action is based on. And will lead to a much more peaceful world, a world where where property rights are defined and protected by mathematical code, regardless of what centralized third parties want to do, even if those third parties control violence on an enormous scale. That violence will be impotent against the math. What a clip. All right, go ahead, Joe.

Starting point is 00:18:29 Yeah, I agree with what you said at the start. Like, Grace Mayer was a key figure in my role in helping understand Bitcoin him. Here, Richard, who's now VP of Research at Riot Platforms, Bittstein. So yeah, this is a very interesting clip. And I think new people that might be getting into Bitcoin because the number is going up, you know, the price is going up, it kind of enables you to take a step back and like realize how powerful the tool, cryptography and Bitcoin is to begin with. If we're right about Bitcoin, which I think we are, then it has a lot more implications than just you potentially making a lot of money. It could change the world for the better. Like it could prevent or make it more difficult for governments to finance,

Starting point is 00:19:09 or print money to fund endless wars or whatever else. So it's a pretty incredible technology beyond just becoming more wealthy. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is.

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Starting point is 00:23:27 Back to the show. So this is probably the number one passion point I have in Bitcoin is what he was talking about there. And it's mostly because of my background. I spent two years in a combat zone in military service. And I just saw how insanely corrupted that entire process is. And at the core of it is you can go to war with somebody else. And citizens, for the most part, that represent that body, that military body that aren't serving, they're not taxed up front, right? They're taxed through the depreciation and the debasement of the currency. And so they're paying the bill for the next 10, 20 years or whatever through the inflation of the currency. And for them, it's kind of like,

Starting point is 00:24:13 well, no big deal. But when you start going to a hard money where you just can't print more of it or else your country can't possibly compete when there's this decentralized money that no government can control, all of a sudden, the incentives and the game theory on violence itself completely changes. And as somebody that was on the end of that and had to deal with the repercussions of all of this are, I can tell you this is hands down the most passionate thing in Bitcoin that I have. So love that clip from Trace. He does such a phenomenal job explaining that in detail. All right. Let's go to this next one. This is a really good clip. And this is Nick Batia talking with Marty Bent with the TFTC podcast. And again, we'll have links to all of these in full detail

Starting point is 00:25:02 if you want to watch them in long form in the show notes. But Joe, anything else you have for this next one for the setup or just jump to the play? Let's jump into it. Okay, here we go. And I realized that something else was happening. And Michael Saylor is not selling assets to buy Bitcoin. Not only is he not selling assets to buy Bitcoin, his investors that are buying his convertible bonds are not necessarily selling other assets to buy those bonds. How? Because if you're a bond investor and I worked at two bond shops, one of them had about $4 billion under management, the other had over $100 billion under management. At the $100 billion firm, I personally was responsible for the execution trading of about 20 billion of those securities. So we had a lot of treasuries. And those

Starting point is 00:25:52 were all in my book. I didn't make all the decisions. I made some of them, but I was in charge of trading. So I had to know everything about the market. As I was trading these bonds, some of my treasuries that were on my book, the credit guys would say, hey, sell five-year treasuries. I need to buy this five-year Apple bond. And I need cash. So I said, okay, so I sell my treasuries. He buys the Apple bond and in a couple days the money comes in for my sale and it goes out to Apple and Apple gets the money and where did it come from? It came from an existing pile of money that in which I owned US Treasuries. But what if I shouted back to Rob, hey Rob, I don't have any fives.

Starting point is 00:26:37 You're just going to have to buy it. I'll sell Treasury futures on the other side so you don't take on double duration, right? because each bond has duration risk. So I'll sell Treasury futures. You buy the Apple bond. You don't have risk, but then Rob says, well, how am I going to finance it? Where's the money? And I tell Rob, call Morgan Stanley and ask them to finance your bond.

Starting point is 00:26:58 So he calls Morgan Stanley and Morgan Stanley says, we'll lend you 80% of the money or 70% of the money at SOFER plus 50 basis points. And Rob looks at the screen and he says, okay, done. So now Morgan Stanley has just created. 70% of the new purchase from thin air. Now, where does Morgan Stanley get the money? Well, Morgan Stanley repo desk, underwrites that collateralized loan, because they've taken the micro strategy bond as collateral, they've issued money. Where do they get the money? It's basically the daisy chain of banking liabilities from their parent bank. And their parent bank doesn't necessarily

Starting point is 00:27:38 have to mark that extension of the balance sheet until month end, but their desks are managing, how much liability expansion is happening. And then at the end of the month, they try to true it up to make sure that it looks good for the books, the window dressing that we hear about. And at the end of the month, they have expanded their balance sheet by X amount, and some of that X, a proportion of it, is due to an expansion of repo financing. Therefore, my entire point about this next wave of Bitcoin price increase is that it is due, not 100% to a rotation.

Starting point is 00:28:17 This was the big word that we would all use for years. That the bond market is $100 trillion, guys. Some of that money is going to get into Bitcoin. But you're assuming that they're going to sell the bonds. But that's not how these bond managers do things. Yes, they sell some bonds to buy new bonds. But bond funds, finance positions with repo. They borrow money to buy new bonds.

Starting point is 00:28:42 And that's how they leverage. So they're over 100% in their AUM in securities holdings. And if you have 150% long bonds, that means you have a negative 50% role. It's a financing role. It's a borrow. The 50% over 100 comes from the borrow. And that borrow doesn't come from somebody else's borrow. It comes from credit extension.

Starting point is 00:29:09 Go back to your basics on how a bank extends a loan. loan, balance sheet A is 100 assets and 100 liabilities, and balance sheet B next month or next day is 200 and 200 because there's a new 100 loan and new 100 deposits. That is an expansion of the monetary system, the financial system. And my whole thesis here is that Bitcoin getting to 20 trillion is not going to happen because there's several trillion of bonds being sold and then buying Bitcoin or bonds being sold and giving it to Saylor so that he can buy Bitcoin. It's going to be people basically just call it a new company, a new company with a lot of cash flow, so a lot of creditworthiness.

Starting point is 00:29:56 Let's just say Nvidia. Invidia goes to their, let's just say they go to the capital market and say, we want Bitcoin as a strategic reserve now. We want it as a corporate balance sheet item. And Nvidia says, by the way, this $20 billion that we have in cash on our balance sheet, just making up the number, we're not going to use any of that. We don't want to use our cash. And so the market says, well, how about you issue a bond?

Starting point is 00:30:23 And Nvidia says, great idea because the carry, meaning the interest expense will be 5%, and our expected Bitcoin return will be 30% per annum. And so that is a return on investment invested capital that we embrace. So let's make that decision. It goes to the market. It issues bonds. The market buys the bonds, finances them through additional repo financing. If you don't want to think about repo, just think of it as credit.

Starting point is 00:30:53 It's just a credit line. So investors say, hey, can I have a credit line? They go to city and they say, hey, Nvidia just issued some new bonds. I want to buy them. Will you lend me money? And City says, okay, here's a new loan for $100 million. The bond fund takes the $100 million and buys Nvidia bonds. There's no repo there.

Starting point is 00:31:13 Just another random bank that lent you money. Now you have a loan to City. You have to pay interest expense on that. You have a long asset Bitcoin. And the long asset Bitcoin is 100% leverage because you borrowed the money from City. And is City's balance sheet larger today than it was yesterday? Yes. So where did the money come from for new Bitcoin demand?

Starting point is 00:31:33 It came from Thinare. All right. So, Joe, there's a lot going on here. And I want to pick this apart in gory detail. So go ahead and take it away first. And then I'll throw in my comments. Yeah, absolutely. I mean, Nick has a really good insight here that he really in particular has because he

Starting point is 00:31:49 worked at bond shops. And he knows obviously how the deep financial plumbing of the global financial system actually works. And like I had, I guess, two key takeaways from this. One is the idea of we and the Bitcoin community, including myself, talk about the rotation of other assets into Bitcoin and that's not even necessarily required for Bitcoin to go up substantially. And it's because of this new credit creation process that happens through the banking system, as Nick explained, that new dollars that are being used to buy Bitcoin. And to this example, he's talking about micro strategies, convertible bonds. They're not necessarily coming from another asset class or another bond or whatever else.

Starting point is 00:32:36 It's coming from credit that's being created directly from the banking system itself, and it's being lent out of thin air, which is exactly kind of how the banking system works. And so I thought it was a fantastic clip, and it made me like really kind of be like, okay, wow, like this bull market, if corporates actually go about issuing many, many convertible notes and buying Bitcoin could be pretty extreme. One of the comments that he said it's not going to be the market selling off. It's going to be what was the exact verbiage or the way he said it. I just want to put some context on this.

Starting point is 00:33:09 So what you're seeing is the duration collapse. So if you look at sovereigns 10 years ago, you could issue a 30-year bond. The last year and a half, Janet Yellen has funded the government completely out of short duration note issuance. And the reason why that you're seeing this collapse of duration on all softs, sovereign issuance is because nobody will buy anything with a lot of duration because of the fear of inflation impacting a bond. For people that don't understand, if you buy a 30-year bond and it's only yielding a 2%

Starting point is 00:33:43 coupon and you experience 5% inflation over that 30 years, your net negative 3% buying power loss over each one of those years are compounded. And so the real impact is massive. And let me tell you, if the market thinks that the inflation is going to be 5% and you're selling it at just in that example that I used at 2%, that bond is going to be impacted on the price massively for anything with a lot of duration. So what they've had to do is they've had to go out and only issue three-month money or six-month money because they know that if they sold something that was 30 years in duration,

Starting point is 00:34:22 it would be immediately a massive discount, even as they're selling it into the market, let alone how it would perform afterwards. And so Nick's point that they have to roll it. What he's getting at there is, as this continues to unfold from a fiscal standpoint, the way that the governments are going to handle it is they just have to issue short duration money. Then if the market's really concerned about the inflation and the government's inability to control their spending, the yields on that short-duration. short duration money you're going to keep going up. So we talk a lot about tether making,

Starting point is 00:34:57 they made over $10 billion last year by just holding short duration treasuries because these short duration treasuries are yielding so much on the coupon. And so think about the impact here. So they've already lost all of the duration that they can issue. And now they have to start flirting with the idea of do we have to issue it at an even higher coupon rate with no duration? And that's where this printing, and that's where a lot of this is unfolding. And he's exactly right that as these other bonds are either being bought back out of the market and then issued at short duration, or, and this is at a corporate level and even a sovereign level, what the impact that you're going to see in the printing is it's all going to be short duration, and they're going to struggle

Starting point is 00:35:41 to keep the yields at bay if they can't get the fiscal out of control spending under control. Now, I think it's very interesting right now with Doge and what's happening in the U.S., like, what does that mean from a bond issuance standpoint out of the Treasury? Can they start bringing interest rates down if they start getting their fiscal spending under control? I forget what the deficit was just this past year. I want to say it was close to like $2 trillion. And when we say that, that's how much more they spent than what they brought in through tax receipts and basically the top line of the government. government. And so let's say they can bring that, let's say that they could just take all of that out, which is where the printing is really coming from, is that deficit is really kind of what they have

Starting point is 00:36:28 to paper over an issue with short duration notes. My comeback to that would be because a Bitcoiner would say, okay, well, if they can get that under control, well, then the printing's not going to be there and the dollar's going to get stronger and all these other things. There's two comebacks that I have to kind of that talking point. First of all, the system itself, is dependent on M2 expansion for real estate prices, for stock market valuations, like all of that, that expanding M2 liquidity is part of that top line. If you want to see just horrific tax receipts on any given year, they're almost completely correlated to poor performance in equity markets. And then Luke Roman talks about this all the time. If you want to see the government

Starting point is 00:37:14 really have a massive deficit, look when the equity markets underperform. And when did the equity markets underperform when there wasn't enough liquidity being provided into the economy and they were trying to pull things back. So that continued expansion of, call it, 8% on M2, I think is a core function of a Fiat system at large. The other point that I would make is just because the U.S. is getting their deficit down through, call it, government efficiency. Let's just say they're successful and they are able to drop at a trillion or two in the coming year or two. That doesn't mean that every other country on the planet is now all of a sudden becoming efficient like the U.S. is, right?

Starting point is 00:37:54 And last time I checked, all these other governments are a huge input of the amount of fiat being added into the system. Okay. So if the dollar gets too strong relative to all these other currencies because they're being fiscally, all of a sudden they're being fiscally responsible because of Elon Musk's doge, which I think is a huge. shift, okay? The dollar can't accelerate in a way versus all these other currencies, which is exactly what would happen. They would have to devalue the dollar in order to make the system

Starting point is 00:38:24 function and not have sheer chaos. So there's a lot going on in that clip. I love how Nick lays it out. He's exactly right. I just wish he would have, and it's hard to cover all, because there's so much going. This stuff is so complex. But in my opinion, the duration is really important. And then the interest rate on top of that nothing duration that's going to be issued is really kind of how a lot of this flow of additional printing is going to manifest itself into the economy. Any other points that you have, Joe, on that one? Sorry, I went on so long, but that's a really, really important clip. And Nick did an amazing job talking it.

Starting point is 00:39:01 Yeah, no, that was great. And I completely agree. It's going to be really interesting to see how successful Doge is. Like, we've seen them saving millions and even billions of dollars. and it kind of shows like how massive the government really is for them to be saving billions of dollars and still not really making much of a dent quite yet. But I agree, like if they actually did make a dent and were able to successfully balance the budget, I can imagine markets would probably falter.

Starting point is 00:39:26 And then, you know, the sovereign wealth fund would be buying all of the assets and buying probably a lot of Bitcoin. So it'll be interesting to see how it plays out. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving.

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Starting point is 00:42:56 At the end of the day, if there's trillions of less units in the system, that is going to impact the price of everything. Now, some assets are going to be impacted more than others as far as the price moves. But if there's 100 trillion units in the system and you remove 25 trillion of them, it's just like an example, if it's decreased by 25 percent. Now all of a sudden, everything has to be repriced with less units in the system. The dollar's going to bid. It's going to get really strong in that scenario. And so that's really bad for tax receipts because if people didn't make money for the year in the stock market and how they're holding all their assets, all of a sudden the top line that's then flowing back to the government's impacted, and that has to be offset

Starting point is 00:43:38 somehow. So there's, it's this ongoing, and I would love to have a lot of conversation around this idea. And so people listening to this in the comments, whatever, I think this is a really important thing to discuss. But those are some of the key variables that I think are important to kind of think about as you're going through this fiscal deficit reduction. I think there's some very naive takes on how important just basic liquidity in the expansion of liquidity is when you're operating in a fractional reserve fiat base system. All right. Let's go ahead and go to the next clip.

Starting point is 00:44:14 And just so people know, this is Tad Smith. I had him on my show. He's an expert in art. He was the CEO of Sotheby's and just an amazing thought leader in the space here. I didn't realize that if the average. that if the average year, the money printer goes, call it 8 to 10%, even in the Western countries, even in the OECD nations, and the average return on the S&P 500 is call it 9-ish percent, including dividends, maybe 9.7, maybe a little less, that it means that all of the work of the S&P 500, all of the value

Starting point is 00:44:52 created there, is actually the money printer. That to me was startling. I mean, to think about that, The fundamental notion that in a closed system or even an open system, when you're printing money at the rate of 8 to 10% a year, everything is losing value. And the things that appear to be gaining value are not gaining value. They're just keeping you even. So you can put all your money in the S&P 500 and you're not gaining any relative wealth at all. That's a startling insight. I mean, when you really think about the entire value of the S&P 500, on average, over a long

Starting point is 00:45:22 period of time, not even a long period of time, is equivalent to the money printer. That's, to me, a shock. And it was a shock that said, oh my goodness, how do you think about creating wealth that is relatively greater in this economy? And you have to look hard. The other thing you can imagine is I could tell you about sharp ratios and diversification. I could tell you all these different things. And you know, it's interesting.

Starting point is 00:45:45 You can take a concept like diversification of risk. And at a top level, it can be a very powerful and useful tool. But if you are so focused on the mechanistic aspect of that, you can step back. and miss the forest, which is in a highly diversified portfolio, it's unbelievably hard to pick up relative amounts of wealth. It is. Diversifying your portfolio, however you do it, is by and large going to reduce your incremental gain in wealth, irrespective of the sharp ratio. It's concentration of capital in specific bets that outperform the money printer where you actually create wealth. That was a shock to me. I just didn't get it. I didn't understand it, even though I

Starting point is 00:46:28 taught finance for 20 plus years. I'm still a professor at NYU Stern at Stern Business School. I've taught strategy and finance for technology media entertainment companies. I'm on a two-year higher aias, but I'll be presumably going back in the spring. For 25 years, I have almost actually more than 1,000 former students. And I still didn't get it until I'm age 58. That's the Bitcoin journey. What a zinger, right? Like, holy moly. What's your take on this one, Joe? Yeah, I think Tad is like one of the best voices in the Bitcoin space. I mean, teaching at certain business school, one of the top business schools in the world for 20 years, kind of making the key point of why you should hold and save Bitcoin is really cool to see him

Starting point is 00:47:09 doing that. I think he made like two pretty key points in that video. One is the S&P 500 just keeps up with the money printer. And I think a lot of people kind of intuitively already know this. If you're a typical investor ignoring Bitcoin, you're saving, effectively saving in assets like SPY or V-O-O-S-NP-500 index funds, you're not really picking any specific winners, you're just trying to hoping to match the market. In reality, the market is just kind of keeping up with the growth in M2, the growth in the dollar money supply. The second key point that I made that I really liked was diversification limits outperformance. And this also makes intuitive. sense to me. It's right. Like, if you're going to buy a basket of a bunch of different companies

Starting point is 00:47:57 and various different industries, you're probably just going to match the market. You're not going to generate any significant wealth above the market return. And that's kind of like how investing should be. Like, investing should require that you concentrate capital and risk into a really good idea. And then that's actually how you're going to outperform the market. Obviously, that's extremely difficult to do, and it should be extremely difficult to do. That's how he thinks about it, and that's how I think about it. So this is a fantastic clip that kind of made me really think about Bitcoin. Yeah, I agree. It's a great clip. And just for people, I did a quick, this is using perplexity AI. I was just kind of curious with the 10-year return has been for the NASDAQ and for

Starting point is 00:48:40 the S&P 500, just so we can put out the exact numbers here. And the S&P 500 has returned annually 13%. And the NASDAQ VOO is what I used here. No, I'm sorry, they're both the S&P 5. I put in the wrong ticker for the NASDA. It was showing VOO was 12%. So for the SMP 500, we're getting between 12 and 13%. If we're talking about this number that he's using this 8 to 10% of the debasement rate, just so people fully understand what he's referring to is the M2, the money supply growth rate,

Starting point is 00:49:12 is between, call it 8 to 10%. And so what he's saying is if the money supply is growing at this rate, and the S&P 500 is given you something similar, which I would argue there's about 2 to 4% outperformance in the S&P 500 versus if we're using 8 to 10% on the M2 growth rate. You're barely like getting ahead from a buying power standpoint. And I think a really interesting, you know, if people want to run these numbers, go out there and look at your everyday food costs. Let's just call it, you know, a steak from 10 years ago, okay?

Starting point is 00:49:47 And look at what that price was 10 years ago and maybe pick a basket of things that you're constantly consuming, figure out what the price was 10 years ago, figure out what the price is today, then do what's called a compound annual growth rate on what the price of that basket that you came up with on your own, see what it was, and then compare that to if you just stored that in the S&P 500, what that same basket would have costed you in S&P or SPI shares back 10 years ago versus now. And when you run this experiment, you're going to be a little surprised at what you find out because there's a lot of truth in what Tad is talking about. Let's go to the next clip. This is of Anthony Pompeiano and, oh my goodness, help me out here, Joe.

Starting point is 00:50:31 Howard Lutnik. Howard Lutnik, thank you. The former CEO, he's now the Commerce Secretary under President Trump, but he was the former CEO of Cantor Fitzgerald. And he's, he's a former CEO of Cantor Fitzgerald. and he's a hardcore Bitcoiner. So we're going to go ahead and play this clip, which is very interesting because he's also going to be the guy that is making the selection of what goes into the new sovereign wealth fund that was just established via executive order last week. So we're going to go ahead and play this clip. And here it goes.

Starting point is 00:51:01 How do you think about either you or Cantor? I don't have a big enough percentage. I probably have. I can't say because then people can figure out that money and how much I have. I would say I have hundreds of millions of dollars. Okay. Okay, hundreds and hundreds of millions of dollars, exposure to Bitcoin, and it will be billions. I was going to say, so next year when you come back and we'll do this again, and you'll be a Bitcoin billionaire.

Starting point is 00:51:24 And you remember that model I told you. So if every time Bitcoin dips, I'm going to be the part. I know why you're doing the lending. Listen, listen, you don't have to explain that one around here. I got the 50% Bitcoin. I got the Bitcoin lending. But basically, what you're going to see is, can't. if it's Gerald is going to be the sponsor of Bitcoin into traditional finance. And so we will be the

Starting point is 00:51:48 leader of it. And I'll pull out this podcast in years to come and say, see, I told you, because no one's going to remember. Of course. But all the banks, after we do it and show people how to do it, right, they'll all copy. And so the asset of Bitcoin will just, as it becomes more except it will become more valuable. And the whole Bitcoin nation should just call it a commodity, never a currency, just call it a commodity. Because if it's a currency, you're attacking the politicians of the country, right? You're trying to replace my currency with yours. But if you say, hey, hey, hey, I'm just oil, I'm just gold, I'm just a commodity.

Starting point is 00:52:27 Leave me be, right? Then they'll leave you be. And that is true. And it will be why Bitcoin, which is rare and is special, will become ever more rare, as we both know, ever more valuable. Over time, it'll be financed just like gold is, right? Gold is, it's not like superfinanceable, but it's financeable. Oil, it's not super financiable, but it's financeable, right?

Starting point is 00:52:52 Bitcoin will be financeable. Bitcoin will be way, way, way higher, sometimes lower. You just have to have faith. All right. That is your new Commerce Secretary of the United States talking. So, Joe, take it away. Yeah, this is a far last clip, I think is a really good one. I think Howard Lutnik is probably one of the people that is closest to Trump that has a really

Starting point is 00:53:15 good grasp on the importance of Bitcoin and why anyone should really be holding it, saving it. Obviously, like he said, he has hundreds of millions of dollars personally in Bitcoin, which is obviously a significant amount. So I think it's great that someone close to Trump understands Bitcoin to the degree that Howard Lutnik does. And also, I think when Trump was signing his executive order on the potential U.S. sovereign wealth fund, you had Howard Lutnik standing right next to him saying things positively about the U.S. sovereign wealth fund at Bitcoin, too. So it's like the stars are kind of aligning to where if the U.S. does really venture into Bitcoin, I feel like Howard Lutnik will be there

Starting point is 00:53:54 saying we need to buy Bitcoin and we need to buy it inside. So I thought it was a great clip. The part that caught my attention was there at the beginning when they're talking about why would you get into the borrowing and lending space and they both kind of laughed. So if you're a major whale and you want to be able to acquire a lot of coins. In my opinion, one of the best ways for a person to be able to do that is in the borrowing and lending space, whenever the other party cannot post more collateral and the price moved against them, they're able to soak up those coins by liquidating them. And I think that's why they were laughing and kind of having that moment there. And the reason Pomp, I have no idea, but this is what I would surmise. The reason Pomp was

Starting point is 00:54:38 kind of like, you don't have to tell me. I get it is because of the past experience in the last cycle. But I honestly don't know. But that would be what I would guess. So I think this is an important, very, very footstomp important note for people because these banks are going to be coming into this space in the borrowing and lending in style. They are going to be tripping over themselves to step into this space. And that clip, I want this to be etched into people's brains. that the buyer on the other, the person that would end up with coins that get liquidated because of the intense volatility in this is more than happy to soak them up at super low volatile prices.

Starting point is 00:55:22 Like if Bitcoin rips to $300,000 and dips to $150 and you get liquidated in a loan, the person who's collecting those coins, those Bitcoin that you no longer are going to be holding in that scenario because you didn't have enough more Bitcoin to post is collateral to keep the loan in place. they are more than happy to collect and retain those Bitcoin at that 50% drop. And you hear firsthand from a guy who's squatting on over 100 million plus coins that that's what he fully intends on doing. So don't forget this clip.

Starting point is 00:55:54 And don't forget that the buyer of last resort are people that are ultra high net worth individuals that understand the long-term move that this thing's going to have. And their opportunity to soak up a lot of coins are in those. moments. So if you're going to take out a loan against your Bitcoin, first of all, make sure that you understand who your counterparties are and that it's peer to peer because if it's tranched with other crap assets, like you're already in a very precarious situation. The other thing that I would tell people is if you do take out a loan and you don't account for a 50, 80% drop and what the value of the other Bitcoin that you have to post as additional collateral so that you don't get liquidated,

Starting point is 00:56:35 you might want to do that math and be prepared for all of this. And here's another thing. If you never want to have to worry about any of that, you just don't take out loan against your Bitcoin. So some things to think about and you can see the smiles on the faces of people that are very anxious to get their hands on your Bitcoin through borrowing and lending if you aren't prepared for what the math might actually bring. Joe, any other thoughts?

Starting point is 00:57:03 Yeah, no, it reminded me kind of March 2020 when Bitcoin went down to $3,000 or so from $8,000 and then like a matter of days or at least maybe like one week. It didn't last there for very long. And part of the reason it was there was because people were using leverage to buy Bitcoin and got wiped out really low. If you're going to use leverage in Bitcoin, be extremely conservative. I think that's the best way to go about it. Yeah.

Starting point is 00:57:29 And I think that I'm not saying that a person shouldn't borrow and lend against their Bitcoin. I think that people are way underestimating at what point they should be doing that and at what sizing they should be doing that and how much research they need to do on who the counterparty is and who's introducing that counterparty. And like all of these things, it's the big boys club, right? Like nobody's going to hold your hand and teach you. You have to teach yourself. You have to do the work and you have to understand the real risks. And I think that's what I'm trying to impress upon people listening is you really need to do your homework and you really need to understand this very deeply before you start playing in the space if you want to keep all your Bitcoin.

Starting point is 00:58:11 Joe, this was fantastic. Thank you so much for curating this. Your selection of the clips were incredible. I truly want to do this more often. And I would love to do this maybe once a quarter with you or whatever. So really appreciate you taking the time to do this. Any final thoughts on any of the clip? Yeah, no.

Starting point is 00:58:28 Preston. Thanks for the invite. Obviously, I've been listening to your show for many years. So it was an honor to come on and speak with you. So really enjoyed it. Hope everyone enjoyed the clips. And yeah, definitely down to do it again at some point. Joe, tell people where they can find you.

Starting point is 00:58:42 Yeah, absolutely. So on Twitter, I'm at III Capital. Watch out for the impersonators there. Also on YouTube, just search Joe Burnett, Bitcoin. I should pop up there. And I work at Unchained. So we help people securely hold Bitcoin for generations. and you can learn more about Unchained at Unchained.com.

Starting point is 00:59:01 Love it. Thank you so much, Joe. And until next time, thanks for listening. Really enjoyed this. Awesome. Thank you for listening to TIP. Make sure to follow Bitcoin Fundamentals on your favorite podcast app and never miss out on episodes.

Starting point is 00:59:18 To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only, before making any decision, consultant. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - BTC222: Top 5 Bitcoin Clips of Q1 2025 w/ Joe Burnett (Bitcoin Podcast)

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